A clear and, most importantly, transparent tax system is one of the most important conditions for economic development. The Concept of Improving the Fiscal Policy of the Republic of Uzbekistan adopted in 2018 enabled to continue implementing the tasks of creating a favorable environment for reducing the tax burden, simplifying the tax system, improving tax administration, developing entrepreneurship and attracting foreign investment. To implement the main directions of the Concept and reduce the shadow turnover in the economy, a Strategy for Improving Tax Administration and a corresponding road map were approved last year.
Chairman of the State Tax Committee MUSAYEV Bekhzod Anvarovich speaks about complex measures to improve fiscal policy and priorities in the activities of tax authorities in his interview with the Editor-in-Chief of the magazine «EBU».
– Dear Behzod Anvarovich, at the beginning of the year, the preliminary outcomes of the tax reform were published, that showed that the results of the state budget execution on revenues for 2019 amounted to 83.3 trillion soums, or an increase of 154 percent compared to 2018. Can we already talk about achieving the planned indicators that were expected during the reform process?
– If we talk about the main goal that was set for us during the tax reform, which is to create clear and stable tax conditions that stimulate investment activity and economic growth, it has been achieved. The solution of many tasks to achieve this goal allowed to eliminate the disparity in taxation and unfair tax burden, as well as to relieve business from administrative pressure, since the reform also included the transformation of tax authorities into a service-oriented institution.
Digitalization and creation of comfortable conditions for partnership with honest taxpayers became a priority for tax authorities. For these purposes, a Strategy for Improving Tax Administration was approved, aimed at creating a digital model of communication with taxpayers. New divisions have been created the State Tax Committee that are in charge of service and determining the development strategy of tax authorities.
Our goal is to create conditions for voluntary fulfillment of tax obligations. And we have set a priority for ourselves — to be business partners of honest taxpayers. In this direction, we managed to make the first bold steps and achieve certain results, namely: the number of electronic services increased to 45, in particular, in 2019, taxpayers used electronic services 400 million times! Businesses through a taxpayer’s personal account paid taxes online for a total of 26.6 trillion soums.
Businesses got the opportunity to receive round-the-clock service and to reduce the risk of committing tax offenses. Only last year, 98.6 thousand requests were received and reviewed through the established Call Center, and 5.7 thousand urgent problems in the performance of tax obligations were solved through the “helpline”.
As for the fiscal effect, it exceeded expectations. As you correctly noted in your question, the growth of tax revenues has reached unprecedented results in the history of tax authorities – 154 percent!
– Starting October 2019, the VAT rate has been reduced from 20% to 15%. As far as we know, initially the draft Tax Concept provided a reduction of VAT to 12%, and the World Bank experts did not recommend reducing the VAT rate. What is the reason for the decision to set the rate at 15%, and not to bring it to 12%, as in neighboring Kazakhstan and Kyrgyzstan? Is there any prospect of revising the value added tax in the foreseeable future?
– Extensive discussions on reducing the VAT rate were held throughout the Concept development process and its implementation. First of all, this idea was due to a gap in the value chain, which led to uneven distribution of the burden on the economy. The final point in this discussion was set at the end of last year, when it was decided to reduce the rate to 15 percent.
The decision can be called historical and a compromise, because in the context of large-scale reforms, when it is necessary to provide a stable source of financial resources for their implementation and to mitigate possible risks, Uzbekistan, against the background of the global trend to increase the rates of indirect taxes, opted to support entrepreneurship and reduce the rate of one of the budget-forming taxes by a quarter.
This is a significant reduction in the rate, because VAT now accounts for more than 30% of the total revenue of the state budget and its reduction allowed businesses to keep 10 trillion soums at their disposal. Calculations have shown that setting the rate at 15% today provides fiscal stability and improves the business climate.
As for our neighbors, it should be noted that the rate reduction in these countries took place in several stages. For example, in Kazakhstan, the rate was reduced from 20% to 16% in 2001, and only in 2009 it was brought to today’s 12%.
Arguments in favor of reducing the VAT rate can be called optimization of benefits and strengthening of tax administration, due to which we were able to ensure an increase in revenues of this tax by 1.8 times.
I will focus on a few figures: at the beginning of 2019, the payers of this tax were no more than 7 thousand business entities, and at the beginning of this year, their number reached 82 thousand, which is 12 times more than in the pre-reform period.
Such indicators are characterized by a credit-return mechanism, thanks to which the effective VAT rate today is 6.8 percent.
Despite the positive dynamics, today we are working to improve VAT administration by introducing digital technologies and analytical tools, the results of which may become prerequisites for further revision of the rate.
– The tax burden on wages has also been significantly reduced. But the introduction of VAT as a result falls a burden on the consumer, rather than on the producer of goods and services, being more of a “consumption tax”. How does this factor affect the purchasing power of our citizens? Are there any statistics on this?
– Indeed, a 1.5-fold reduction in the tax burden on payroll can be called a driver for the removal of about 500,000 jobs from the gray zone and a double increase in personal income tax revenues, despite a reduction in its rate to 12 percent. This, in turn allowed the population to keep 4.2 trillion soums at their disposal, that supported the purchasing power at the appropriate level. At the same time, it should be taken into account that VAT is not a new tax for our economy, and we did not introduce it in 2019, it has been the main fiscal instruments for 28 years. Moreover, the main parameters of this tax were revised taking into account the interests of business and the population. The reduction of the rate and optimization of the value chain added about 10 trillion soums to the economy.
The achieved growth in VAT receipts is not only characterized by expanding the tax base and strengthening tax administration, but also increasing consumption in the economy, which is achieved due to the parity between the fiscal burden and the ability to pay.
– The State Tax Committee regulates and controls the correct application of zero VAT rate. Thanks to the reforms, taxpayers will be able to return the VAT paid at zero rate within 7 days from the date of submission of application. However, according to entrepreneurs-exporters, this is quite a long time. When it comes to large down payments, they simply lose profit on this. Is it possible to reduce the return period, for example, to one day or even one hour?